US business activity slows; house prices jump

A ‘House For Sale’ sign is seen outside a single family house in Uniondale, New York, US, May 23, 2016. — Reuters pic
A ‘House For Sale’ sign is seen outside a single family house in Uniondale, New York, US, May 23, 2016. — Reuters pic

WASHINGTON, Sept 23 — US business activity cooled in September, with gains at factories offset by a retreat at services industries, suggesting a loss of momentum in the economy as the third quarter draws to a close and Covid-19 lingers.

Data firm IHS Markit said today its flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, slipped to a reading of 54.4 this month from 54.6 in August. A reading above 50 indicates growth in private sector output. Though the private sector continues to expand, this month’s dip in the index supports expectations of an ebb in economic momentum as the boost from fiscal stimulus fades.

Gross domestic product is expected to rebound at as much as a record 32 per cent annualized rate in the third quarter after tumbling at a 31.7 per cent rate in the April-June period, the worst performance since the government started keeping records in 1947.

The coronavirus crisis wiped out more than five years of growth, and economists are calling for another aid package from the government to help the fragile recovery. The economy slipped into recession in February.

“The question now turns to whether the economy’s strong performance can be sustained into the fourth quarter,” said Chris Williamson, chief business economist at IHS Markit, noting that the uncertainty over the Nov. 3 presidential election had also risen. “Risks therefore seem tilted to the downside for the coming months, as businesses await clarity with respect to both the path of the pandemic and the election.”

Moderation in business activity was not confined to the United States. Euro zone business growth ground to a halt this month amid a renewed downturn in the dominant services sector, a separate survey from IHS Markit showed today.

Six months after the Covid-19 pandemic started in the United States, coronavirus cases remain high, with the death toll in the country exceeding 200,000 yesterday – by far the highest number of any nation.

The survey’s services sector flash PMI fell to 54.6 this month from a reading of 55.0 in August. Economists polled by Reuters had forecast a reading of 54.7 this month for the services sector, which accounts for more than two-thirds of the US economy. The services industry has been hardest hit by the virus and remains below its pre-pandemic level.

A measure of service industry employment slipped this month.

In contrast, manufacturing firms signalled an acceleration in activity. The flash manufacturing PMI increased to 53.5 this month from 53.1 in August. Economists had forecast the index for the sector, which accounts for 11 per cent of the economy, holding at 53.1 this month. A measure of new orders received by factories edged down to a reading of 54 from 54.1 in August.

“The shift from a few months with large increases across PMI components to more mixed results looks broadly consistent with many economic indicators that point to a loss of momentum lately following a period with widespread and robust gains as the economy started recovering from the virus-related shock,” said Daniel Silver, an economist at JPMorgan in New York.

Stocks on Wall Street were trading lower. The dollar rose against a basket of currencies. US Treasury prices fell.

Strong housing market

While the overall economy is showing signs of slowing, the housing market is pressing ahead, driven by historically low mortgage rates and a pandemic-fueled migration to suburbs and low-density areas in search of more spacious accommodation as many people work from home.

The strong demand for housing has not been matched by an increase in supply, boosting house price inflation. A separate report today showed the Federal Housing Finance Agency (FHFA) house price index rose a seasonally adjusted 1.0 per cent in July after a similar gain in June. House prices jumped 6.5 per cent on a year-on-year basis in July. That was the biggest annual gain since June 2018 and followed a 5.8 per cent increase in June.

The FHFA’s index is calculated by using purchase prices of houses financed with mortgages sold to or guaranteed by mortgage finance companies Fannie Mae and Freddie Mac. A report from the National Association of Realtors yesterday showed house prices surged 11.4 per cent in August from a year ago.

“We expect demand from buyers fleeing urban areas to taper off, while the weakening recovery in the labor market will pose headwinds to housing activity,” said Nancy Vanden Houten, lead US economist at Oxford Economics in New York.

“Sparse inventory, particularly of existing homes, will keep a solid floor under home prices even if demand softens from its recent level.”

A third report from the Mortgage Bankers Association showed applications for loans to purchase a home increased 3 per cent last week from the prior period.

The 30-year fixed mortgage rate is around an average of 2.87 per cent, according to data from mortgage finance agency Freddie Mac. — Reuters

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